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Although we believe that our judgments and estimates are appropriate, actual future results may differfrom our estimates.Inventory ReservesInventories are valued at the lower of standard cost, which approximates actual cost computed ona first-in, first-out basis, or market value. We establish reserves against our inventories that are equal tothe difference between the cost of inventory and its estimated market value. We are required to makeestimates about future customer demand for our products, taking into account historical patterns, orderbacklog, changes in technology, projected sales based on economic conditions and growth prospects,and market acceptance of current and future products. A failure to correctly estimate these conditionsor uncertainty in the future outlook for the economy and our industry, or other failure to estimatecorrectly, could result in additional inventory losses in excess of the reserves established anddetermined to be appropriate as of the balance sheet date.Warranty ReservesWe record warranty reserves for the estimated cost of product warranty obligations formanufacturing defects in our products. These reserves are estimated based on expected warranty coststaking into account historical failure rates and the related warranty costs incurred. Warranty reservesare recorded as a cost of revenues and are estimated at the time of sale. While we have activeprograms in place to monitor the quality of products sold as well as failure rates for those products,some of our products are complex and may contain defects that are detected only after deployment incomplex networks and systems. If actual failure rates differ from management estimates due to adecrease in the quality or design of materials and components or a decrease in the effectiveness of ourmonitoring programs, actual costs may differ from the amounts covered by our reserves and thereforemay affect future earnings. In the event that we can no longer reliably estimate our product warrantyliabilities at the time of sale, as a result of uncertainties or otherwise, this will have a material adverseimpact on our recognition of revenue and earnings in future periods.Income TaxesWe have recorded a $16.9 million valuation allowance against the deferred tax asset balance of$40.9 million due to the likelihood that, based on management’s judgment and assumptions, thisportion of the balance will not be realized. We have considered future taxable income and ongoingprudent and feasible tax planning strategies in assessing the need for the valuation allowance. Shouldwe determine that we will, more likely than not, be able to realize a greater or lesser proportion of ourdeferred tax assets in the future, whether this determination was the result of changes in our judgment,assumptions or estimates, or due to uncertainties or otherwise, an adjustment to the deferred tax assetswould increase or decrease income in the period such determination was made. The deferred tax assetbalance includes an amount of $5.2 million which relates to the income tax deduction which may beobtained when employees exercise share options, calculated as the excess of the market price on thedate of exercise over the exercise price. All movements in this element of the deferred tax asset havebeen recorded as changes in additional paid in capital since the actual tax benefits have been in excessof those intially recorded. As well as being dependent on the factors affecting future taxable incomethe realization of this asset is also dependent on our future share price.Intangible AssetsWe have recorded intangible assets on the acquisition of businesses and certain assets. The cost ofthe acquisition is allocated to the assets and liabilities acquired, including identifiable intangible assets,with the remaining amount being classified as goodwill. Goodwill and purchased intangible assetsinclude existing workforce, existing technology, patents, customer contracts and covenants not to59